August 15, 2007

Suspense on Stoneridge is over

This just in: Solicitor General Paul Clement filed a brief today at the Supreme Court in favor of corporate defendants and against plaintiff investors in a closely watched securities case, Stoneridge Investment Partners v. Scientific-Atlanta and Motorola. Stoneridge has been described by some as the biggest securities fraud case facing the high court in decades.

If Stoneridge wins the case, investor class actions could go after third parties -- including accountants and lawyers -- for the fraudulent acts of corporations and directors. Currently, only the government can sue such parties, under a more limited "aiding and abetting" standard. The Securities and Exchange Commission voted to support the broader theory of "scheme liability" as an added protection for investors, but Clement came under heavy pressure from the Treasury Department and President George W. Bush himself to take the other side.

Businesses fear this broad theory of liability would launch what the National Association of Manufacturers' Quentin Riegel said Wednesday will be "an indiscriminate search for deep pockets," as class action litigators sue everyone who had even a passing relationship with corporate wrongdoers. Such rampant litigation, businesses contend, would sour the economy and harm investors in the long run, even if they win bigger settlements in litigation.

Clement apparently agreed and filed on the side of Scientific-Atlanta and Motorola. Adopting the scheme liability theory, Clement said, would could expose "customers, vendors, and other actors far removed from the market to billions of dollars in liability when issuers of securities make misstatements to the market.” Clement addedd, "Such a radical expansion of liaibility is a task for Congress, not the courts."

A slew of other business groups including NAM and the Chamber of Commerce also filed today, warning the Court of the danger of broad scheme liability. The American Institute of Certified Public Accountants, for example, filed a brief stating, "Because they are seen as having ‘deep Pockets’ and may be among the few solvent parties remaining after a corporate collapse, CPAs provide attractive targets for securities fraud plaintiffs." The case is set for argument Oct. 9.

Comments

My mistake - here are the links I mentioned in the previous comment.

Lehn on the Impact of Post-Enron Enforcementhttp://www.professorbainbridge.com/2007/08/lehn-on-the-imp.html
Lehn's paper strikes me as supporting the position I and others have taken in the Stoneridge case before the SCOTUS (our brief was discussed in a post earlier today). If public enforcement is working this well, there is no need to expand the scope of private enforcement (and, indeed, a risk of over-deterrence).

There's a reason that a bipartisan group of 16 former SEC chairmen, commissioners, and officials, joined by 11 of the Nation's leading legal and financial academics, filed an friend of the court brief in Stoneridge Investment Partners v. Scientific-Atlantic.

Because the case isn't really about protecting investors - it's about enriching the Trial Lawyers.

Stoneridge is a huge - massive - case for one of the principal funders of the Left, America's Trial Lawyers.

Famed trial lawyer Bill Lerach's firm stands to make an estimated $700 million on the immediate cases - Stoneridge and Enron - and hundreds of millions more from the open season a Supreme Court decision favoring them would call on virtually every company that does business with publicly listed corporations in the US.

It's called "Scheme Liability," but the real scheme here is to open up the American economy to incessant financial raids by Trial Lawyers Inc.,

If the case goes the way Trial Lawyers, Inc. wants it to, you can be sure that in the years ahead they will find ever more inventive ways link any company that has done business with an alleged securities violator to the violation -- or argue that the company was "reckless" in not knowing that a securities violation had taken place in its customer or supplier. And since the stakes are so high in securities cases that the cases never go to trial, a decision that goes their way will be a license to extortion.

That's why, as important as Stoneridge is, the Trial Lawyers and the political Left don't intend to lose even if the court ruling goes against them

They have been waging a game of high intensity political hardball.

They tried to intimidate the SEC - and succeeded in getting the SEC to write a brief supporting the Trial Lawyer's view of the case.

But their attempt to intimidate the Solicitor General into supporting the SEC's brief didn't work.

So now they are trying to say it was illegitimate for the President and other members of the Administration to weigh in on the case.

That's highly misleading – presidents have done even more in the past. President Dwight D. Eisenhower, for example, helped draft the government's brief in Brown v. Board of Education.

The Left claims Stoneridge is about protecting investors - as if giving hundreds of millions to trial lawyers is, somehow, a plus for investors.

And the Left doesn't mention that the SEC already has full police powers, making the trial lawyers's plan for "scheme liability" wholly unnecessary to protect investors.

Unable, most likely, to intimidate the administration and the solicitor general, and worried that the SCOTUS ruling might not got their way, the left's political goal is to isolate the administration and set the case up in the media and the public's mind as "big business v. investors" – rather than what it is, Trial Lawyers, Inc. against the American economy.

They will scream about it in the blogosphere and Congress for the next year, try to hang it around the neck of the GOP in the 2008 election.

If they succeed and if the Ds win the next election, chances are you'll see legislation in the next Congress to write "scheme liability" into law – a law that would further enrich trial lawyers, a stalwart member of the Democratic coalition – at the expense of the American economy.

There are two really good posts on Stoneridge at ProfessorBainbridge.com today, including:

Lehn on the Impact of Post-Enron Enforcement

Writes Bainbridge: Lehn's paper strikes me as supporting the position I and others have taken in the Stoneridge case before the SCOTUS (our brief was discussed in a post earlier today). If public enforcement is working this well, there is no need to expand the scope of private enforcement (and, indeed, a risk of over-deterrence).

Also, see Bainbridge's other post today on Stoneridge. Here's the LINK.